Gave: The End Of The Unipolar Era Authored by Louis-Vincent Gave via Gavekal Research, Investors today must deal with the effects of not one, but two wars, as my Gavekal-IS colleague Didier Darcet pointed out in April (see Tick,Tock Tick,Tock). The first is the one we can see playing out each day on our television screens, with all the tanks, deaths and human suffering. The second is a financial war, with the unprecedented weaponization of the Western banking system and Western currencies aimed at bringing Russia to its financial knees (see CYA As A Guiding Principle (2022)). To the surprise of most people in the West, resistance against both of these war efforts has proved far stronger than expected. Almost 11 weeks into the war on the ground in Ukraine, Russian troops still seem to be taking heavy losses for relatively small territorial gains. And a little over six weeks after US president Joe Biden boasted that the ruble had been “reduced to rubble” by Western sanctions, the Russian currency is close to a two-year high against the US dollar and near a post-Covid high against the euro. At this point, both the euro and the yen appear to be bigger casualties of the Ukraine war than the ruble. The US boast that the ruble had been “reduced to rubble” is looking premature In this paper, I shall review the implications of this stronger-than-expected resistance - both on the battlefield and in the financial markets - and attempt to draw some salient conclusions for investors. The evolution of warfare In October 1893, some 6,000 highly-disciplined warriors of King Lobengula’s Ndebele army launched a night-time attack on a camp occupied by 700 British South Africa Company police near the Shangani river in what is now Zimbabwe. It was a massacre. The BSAC “police” killed more than 1,500 Ndebele for the loss of just four of their own men. A week later, they did it again, killing some 3,000 Ndebele warriors for just one policeman dead. These one-sided victories were not won by courage or superior discipline, but because the British were armed with five machine guns and the Ndebele had none. As Hillaire Belloc wrote in The Modern Traveller: “Whatever happens, we have got / The Maxim gun, and they have not”. The technological superiority of the machine gun allowed Britain, and France, Germany and Belgium, to subjugate almost all of Africa, even though outnumbered by the Zulu, Dervish, Herero, Masai and even Boer forces they opposed. All were rendered helpless by the machine gun’s firepower. I revisit this ancient history to illustrate how military technology is a lynchpin of the geopolitical balance. Dominance of military technology is also a key factor underpinning the strength and resilience of a reserve currency. Today, one of the main reasons why Taiwan, South Korea, Japan, Saudi Arabia, the United Arab Emirates and others keep so much of their reserves in US dollars is that the US is widely regarded as being a generation (if not more) ahead of the competition in the design and production of smart bombs, anti-missile systems, fighter jets and naval frigates. In short, the superiority of US weaponry has been one of the principal factors underpinning the US dollar’s status as the world’s reserve currency. However, recent events raise important questions about whether the US can retain this superiority. In September 2019, drones allegedly deployed by Yemeni Houthi forces took out the Saudi Aramco oil processing facilities at Abqaiq. Between late September and early November 2020, Armenia and Azerbaijan fought a war over the Nagorno-Karabakh region. The conflict ended in near-total victory for the Azeris. This result stunned the military world. Observers had assumed that Armenia, with a bigger army, larger air force, more up-to-date anti-aircraft and anti-missile systems, and a history of Russian support, would easily triumph. But all Armenia’s expensively-acquired military “advantages” were quickly taken out in the early days of the fighting by Azerbaijan using Turkish-made drones costing no more than US$1mn each. On successive occasions between March 2021 and March 2022, Houthi drones attacked Saudi Arabian oil facilities, notably the giant terminal at Ras Tanura on the Persian Gulf. In December 2021, Turkish-made drones allowed the Ethiopian government to tip the balance in a civil war that until then had been going badly for government forces. In January 2022, Houthi drones hit oil facilities in the UAE. Now, imagine being Saudi Arabia or the UAE. Over the years you have spent tens, if not hundreds, of billions of US dollars purchasing anti-missile and anti-aircraft systems from the US. Now, you see relatively cheap drones penetrating these defense systems like a hot knife through butter. This has to be frustrating. What is the point of spending up to US$340mn on an F-35c (and US$2mn on pilot training), or US$200mn on an anti-aircraft system, if these can be taken out by drones at a fraction of the cost? This evolution in warfare may help to explain the impressive resilience of the Ukrainian army in the face of Russia’s onslaught. When the Russian troops marched into Ukraine, consensus opinion was that the Ukrainian forces would crumble before the Russian military juggernaut. It is always hard to know what is happening on the ground amid the fog of war. But judging by the number of tanks destroyed, warships sunk and the apparent failure of the Russian air force to establish control over Ukraine’s skies, it seems the invasion of Ukraine is proving far more costly in terms of blood and treasure than Russian president Vladimir Putin had imagined. Could this be because Putin failed to factor the impact of drones into his military outlook? It may be premature to jump to that conclusion. But judging from afar, it appears inexpensive Turkish drones have helped level the battlefield in the Ukrainian-Russian David versus Goliath confrontation— the biggest and bloodiest on European soil since World War II. This helps to explain why the US military assistance package for Ukraine Biden announced this month included 700 Switchblade drones. These are surprisingly cheap—the Switchblade 300 reportedly carries a price tag as low as US$6,000—yet highly effective. In essence, they are single-use kamikaze drones. Apparently, they fly faster than the Turkish Bayraktar TB2 drones that the Ukrainians, like the Azeris before them, have used to such devastating effect. This suggests the Switchblades should be able to evade the air defenses that Russia has attempted to maintain over its troops. The US military deployed Switchblades sparingly in Afghanistan, so it is hard to know whether these will perform as billed in combat conditions. But before this shipment to Ukraine, only the UK was permitted to purchase Switchblades. This implies that the Pentagon considers the Switchblade a valuable and potent weapon. David Petraeus, the former Central Intelligence Agency director who, as a four star general, commanded the US campaigns in both Iraq and Afghanistan, singled out the weapon in a recent interview with historian Niall Ferguson: “I’ll mention one item in particular: the Switchblade drone. It’s a loitering munition that takes a one-way trip. The light version can loiter for 15 to 20 minutes. Heavy version, 30 to 40 minutes with a range of at least 40 km. The operator selects a target, it locks on and it follows. Then it strikes when the operator gives that order. This is extraordinarily effective because you can’t hear it on the ground. The first time the enemy knows it’s there is when it blows up. If we can get enough of those into Ukraine, they could be a true game-changer.” However, I digress. Returning to the discussion about why drones might matter for financial markets: 1) If ever-cheaper and more readily available drones are going to revolutionize war, much as the Maxim gun did 140 years ago, then it is questionable whether it still makes sense to invest in tanks, airplanes, anti-aircraft and anti-missile systems. If it does not, what does this mean for the value of the large, listed death-merchants? Cheap drones are bad news for the stocks of defense giants Historically, buying the merchants of death after a big rally in oil made sense, if only because so much of the world’s high-end weapon consumption occurs in the Middle East. But in the world of tomorrow, will Middle Eastern oil kingdoms still line up to buy multibillion US dollar systems from Raytheon, Boeing, Lockheed and the like, if those systems are vulnerable to attacks from relatively cheap drones? 2) Talking of Middle Eastern regimes, the deal prevailing in the Middle East for the past five decades has been that oil would be priced in US dollars, and that the oil-exporting regimes in Saudi Arabia, the UAE or Kuwait would use these US dollars to buy US-made weapons (and US treasuries). With this bargain, the US implicitly guaranteed the survival of the Gulf Arab regimes. Fast forward to 2022, and following the invasion of Ukraine, countries such as Saudi Arabia and the UAE have failed to condemn Russia. What’s more, Saudi Arabia let it be known that it might start to accept payment for its oil in renminbi. Perhaps this makes sense if Saudi Arabia feels it no longer needs US$340mn F-35s, but instead more US$1mn Turkish-made drones? 3) If, as the Azeri-Armenian and the Ukrainian-Russian wars suggest, drones have radically leveled the battlefield in war, this profound development has a multitude of implications. Does it undermine the long-held superiority of vastly expensive armament systems, tilting the balance in favor of much cheaper and much more widely-available weapons? If so, does this mean another pillar supporting the US dollar’s reserve currency status is crumbling in front of our eyes? In a world where military might is no longer the monopoly of a single superpower, or the duopoly of two, does the world become, de facto, multipolar? In such a world, would there still be a compelling reason for trade between Indonesia and Malaysia to be settled in US dollars, rather than in their own currencies? Wouldn’t trade between China and South Korea now be settled in renminbi and won? Drone tactics are a radically different form of warfare, and they are evolving fast. So, it would be premature to offer any definitive conclusions about the extent to which drones will dominate warfare in the future. However, their recent use in Ukraine (and Yemen, Azerbaijan and Ethiopia) means that investors have to be open to the idea that drones will change the battlefield of the future. Because if they are going to change the battlefield of the future, then they will also change the economic and financial realities of today. In this sense, drones might well be the modern-day equivalent of aircraft carriers. In World War II, aircraft carriers made big-gun battleships and other traditional naval warships obsolete, or at least highly vulnerable. Two early Pacific battles proved the point. The Battle of the Coral Sea in May 1942, generally considered by historians to have been a draw, was the first naval engagement ever fought in which the opposing fleets never made visual contact with each other. Carrier-based aircraft drove the action. A month later, the far more consequential Battle of Midway established the new reality beyond all doubt. The Imperial Japanese Navy was ambushed northwest of Hawaii and lost the bulk of its carrier force in a single action. It would be on the defensive for the rest of the war. With hindsight, Midway marked the start of US dominance over the world’s oceans. In short order, this translated into US dominance over global trade. But with the nature of warfare again changing, is this dominance of the oceans and of other battlefields guaranteed to last? Investors need to consider the uncomfortable possibility that it might not. The dramatic shift in the global financial landscape We are all the offspring of our own experiences. One important formative event in my own modest career was the Asian financial crisis of 1997-98. Witnessing how quickly things could unravel left a deep mark. I highlight this because I am not alone in having lived through the shock of 1997-98. Pretty much every emerging market policymaker aged 50-75 (which is most of them) went through a similar trauma. Seeing your country’s entire middle class wiped out in the space of a few weeks—which is what happened in Thailand, Indonesia, Russia, Argentina and others in the period from 1997 to 2000—is bound to leave a few scars. Among emerging market policymakers these scars took the form of a deepseated conviction of “never again” (see Our Brave New World). To ensure their countries’ middle classes were never again wiped out, they adopted a straightforward set of policy prescriptions that in the early 2000s Gavekal dubbed the The Circle Of Manipulation. It went something like this: 1) To avoid a future crisis, your central bank needs to maintain a healthy safety cushion of hard currency bonds, mostly US treasuries and bunds. 2) The more you become integrated with the global economy, the larger this cushion should be. 3) To build up this safety cushion, you need to run consistent and large current account surpluses. 4) To run consistent large current account surpluses, you need to maintain an undervalued currency. Among the results of these policy prescriptions were charts looking like this: By all previous standards, this was an odd state of affairs: an economic arrangement under which poorer countries with high savings rates and vast infrastructure investment needs ended up subsidizing consumption in rich countries with low savings rates and ever-accelerating twin deficits. To cut a long story short, for the last 25 years, we have lived in a world in which undervalued currencies in emerging markets allowed Western consumers to buy attractively priced goods and services imported from developing countries. Meanwhile, the individuals, companies and governments in the emerging markets which earned capital from these sales largely recycled their earned capital into Western assets—because Western assets were perceived to be “safe.” But this perception of safety may now be changing in front of our eyes. Consider the following changes: 1) Developed economy government bonds have proved anything but safe. As stresses of increasing severity have affected the world economy over the last 12 months, investors in local currency Indonesian and Brazilian government bonds and in gold have generated positive returns of between 3% and 4% in US dollar terms. Chinese government bonds are up by just over 1.5%. Meanwhile, Indian and South African government bonds have lost -4%. These performances contrast with US treasuries, which have lost -9%, and the train wrecks suffered by investors in eurozone bonds and Japanese government bonds, which are down anywhere between -17% and -23%. Of these, which can be considered the safest? 2) The confiscation of Russia’s reserves. I will not repeat here arguments I have made at length elsewhere (see What Freezing Russia’s Reserves Means). But in a nutshell, the decision to freeze Russia’s central bank reserves has been the most important financial development since US president Richard Nixon closed the gold window in 1971. From now on, any country that is not an outright US ally—China, Malaysia, South Africa and others—and even some historical friends—Saudi Arabia? The UAE? India?—will think twice before reflexively accumulating US treasuries from fear they may get canceled. Over the course of a weekend, with no discussion in the US Congress, and no discussion with the Federal Reserve, the US administration unilaterally turned the US treasury market on its head. From that moment on, the whole nature of a US treasury security would depend entirely on who owned it. 3) Running roughshod over property rights. It is hard to pin down what the West’s single most important comparative advantage might be. Having the world’s strongest military? Being the seat of almost all the world’s greatest universities? Issuance of the world’s reserve currencies? The list goes on. But surely somewhere near the top of the list should be the sanctity of property rights, guaranteed by rock-solid “rule of law.” The main reason Chinese tycoons for years purchased Vancouver real estate, the Emirati central bank bought US treasuries and Saudi princes parked their wealth in Zurich was the knowledge that, whatever happened, and wherever you came from, you were guaranteed property rights, and a fair trial to ascertain those rights, in any courtroom in New York, London, Zurich or Paris. Better still, since the implementation over the last 850 years in the West of habeas corpus and various bills of rights, you have been able to have confidence that you would be judged as an individual. One of the fundamental tenets of Western democracies’ legal systems is that there is no such thing as a collective crime—or collective punishment. You can only be held responsible and punished for what you have done as an individual. Unless - all of a sudden - you are a Russian oligarch. This is a dramatic development, if only because every Chinese tycoon, Saudi prince, or emerging market billionaire will now wonder whether he will be next to get canceled. If the wealth of Russian oligarchs can be confiscated so abruptly, then why not the assets of Saudi princes? Stretching this a little further, maybe it shouldn’t just be Saudi princes or Chinese billionaires who should be worried. If wealth can be seized without any trial, but simply because of guilt by association, maybe in the not-too distant future Western governments could confiscate the wealth of anyone who mined coal or pumped oil out of the ground. Don’t they have blood on their hands for causing tomorrow’s climate crisis? And while we are about it, perhaps we should also confiscate the wealth of social media barons for failing to prevent a mental health crisis among our youth? 4) Russia’s counter-attacks. Older readers may remember how in the days that preceded the Lehman bust, US Treasury secretary Hank Paulson walked around proclaiming that he had “a big bazooka,” and that if the market pushed too hard, he would fire this bazooka and blow shortsellers out of the water. Unfortunately, with Lehman it became obvious to all and sundry that Paulson’s bazooka was firing blanks. Today’s situation is similar. In the wake of the Russian invasion of Ukraine, the US decided to go for full weaponization of the US dollar, proclaiming the ruble had been turned to rubble. Last week, the ruble hit two-year highs against both the US dollar and euro. Biden’s financial bazooka seems to have been no more potent than Paulson’s. Why? Because Russia decided to fight back, requiring buyers from “unfriendly” countries to pay for their purchases of Russian commodities in rubles. And in effect, the only way unfriendly customers can acquire rubles is by offering gold to the Russian central bank (see The Clash Of Empires Intensifies). This has created a sudden and profound shift in the global trading and financial architecture. For decades, global trade was simple. If Russia produced commodities that China needed, then China first had to earn US dollars by selling goods and services to the US consumer. Only in this way could it acquire the US dollars it needed to purchase commodities from Russia. But what happens now that China or India can purchase their commodities from Russia or Iran for renminbi or Indian rupees? Obviously, their need to earn and save US dollars is no longer so acute. Conclusion Warfare is changing and the financial system has been weaponized like never before. However, the weaponization of the financial system has so far failed to deliver the intended results. At this point, investors can adopt one of two stances. The first might be described as “nothing to see here; move along.” The second is to accept that the world is changing rapidly, and that these changes will have deep and lasting impacts on financial markets. Different war, different world, different consequences For now, there are some clear takeaways. 1) The Ukraine war may be telling us that modern history’s unipolar age is now well and truly over. As big as the Russian army is, and as powerful as the US Treasury might be, the current crisis has demonstrated that neither is powerful enough to impose its will on its perceived enemies. This includes even relatively weak enemies; Ukraine’s army was hardly thought of as formidable, while Russia was supposed to be a financial pygmy. 2) This is a very important message. In an age of drones and parallel financial arrangements, there is no longer such a thing as absolute power—nor even the perception of absolute power. The pot has been called, each player has had to show his cards, and all are sitting with busted flushes! The fact that military and financial dominance may be harder to assert in the future opens the door to a much more multipolar world. 3) For 25 years, emerging market workers have subsidized consumption in developed markets, as emerging market policymakers kept their currencies undervalued and recycled their current account surpluses into “hard” currencies. If this arrangement now comes to an end, then the developed market consumer will struggle while the emerging market consumer will thrive. 4) Much consumption in emerging markets tends to occur at the “low end” of the product chain. This plays into a theme I have been harping on about for the last year: that investors should focus on companies that deliver products that consumers “need to have” rather than products that are “nice to have.” 5) Over the last two years, US treasuries and German bunds have failed in their job of providing the antifragile element in portfolios. There are few reasons to think that this failure is about to reverse any time soon. Today, investors need to look elsewhere for antifragile attributes. Precious metals, emerging market government bonds, high-yield energy assets and foodstuffs are all leading candidates. 6) High-end residential real estate in Western economies will lose the emerging market money-recycling bid and will struggle. 7) New safe destinations for emerging markets’ excess capital will emerge. Obvious candidates include Dubai, Singapore, Mauritius, and perhaps even Hong Kong (should China eventually decide to follow the rest of the world and to live with Covid). It is hard to be too bullish on these destinations. They are so small that even a marginal, influx of financial and human capital will have a disproportionate impact. The world’s unipolar era is over. Few portfolios reflect this reality - and definitely not the indexed portfolios that are today massively overweight an overvalued US and a desperately ill-omened Europe. Tyler Durden Sun, 05/22/2022 - 23:50.....»»
Global semiconductor and IT suppliers have raked in unprecedented revenue growths, thanks to COVID-driven stay-at-home economy. However, the reveling seems to be drawing to an end, with different sectors now bracing for different scales of downturn......»»
Record Rate Cut Shows Beijing Pursues Shock-and-Awe By Ye Xie, Bloomberg markets live commentator and analyst The record reduction in China’s key interest rate on Friday was a rare positive policy surprise from Beijing since the Omicron variant of Covid began to wreak havoc on the economy in the past two months. It’s a clear policy U-turn that aims to offset some of the self-imposed constraints, such as housing restrictions, to boost business and household confidence. If so, more policy easing for the housing market and more fiscal spending are likely to come. China’s banks lowered the five-year loan prime rate (LPR), which is tied to the mortgage rate, by a record 15 bps on Friday, triple the amount that economists had forecast. It was the second policy move in a week that was aimed at propping up the ailing property market, after the People’s Bank of China cut the floor of the mortgage rate a week earlier. Until now, Beijing’s plan to save the economy had been conservative, focusing on liquidity injections and tax reductions. That had fallen short of what’s required to offset the destruction caused by Covid restrictions and the property slump. Take the housing sector: New home sales for the top 100 developers tumbled 59% in April from a year earlier. Goldman Sachs on Friday raised the default forecast for high-yield property developers’ bonds to 32% from 19%. The efforts to lower mortgage rates show a clear sense of urgency to turn around the housing market. As Zhaopeng Xing, senior China strategist at ANZ Bank, said: “The cut signals that the leadership has ended discussion over the property sector and decided to rescue it as soon as possible.” Source: Huatai Securities There are a few reasons to believe that the impact of the LPR cut alone will be limited. As Nomura’s Lu Ting pointed out, mortgage rates had already started to decline, even before recent policy moves. That did little to arrest the sales decline, in part because Covid restrictions limited mobility, jobs, income and confidence of residents. In addition, when consumer leverage is already high, the willingness and ability to borrow remains in question. In fact, property stocks fell Friday, even as the benchmark CSI 300 rallied. What’s clear, then, is more policy follow-ups are likely needed to boost income, save jobs and lift confidence. Here’s is a laundry list from Citigroup on what Beijing could do to revive the housing and the broader economy: Ease restrictions on presale deposits, maybe even tinker with the “three red lines” on funding curbs to improve cash flow for developers Advance part of the 2023 special local-government bond quota to support investment Consumer subsidies or vouchers funded by the central government Special Treasuries to cover Covid expenses, as was done in 2020 (1 trillion yuan) General budget revision to expand stimulus as in 2016 (for tax reform), 2008 (Sichuan earthquake) and 1998 (Asian financial crisis) Bloomberg Economics now forecasts China’s growth will trail the U.S. for the first time since 1976, when Chairman Mao died. President Xi reportedly aims to avoid such a scenario in a year when he is expected to retain power for a third term. The rate cut on Friday may be the beginning of a shock-and-awe attack to get ahead of sagging expectations. Tyler Durden Sun, 05/22/2022 - 23:25.....»»
Bullwhip Effect Ends With A Bang: Why Prices Are About To Fall Off A Cliff It was exactly a year ago, when Deutsche Bank strategist Luke Templeman said that amid the panicked scramble by US wholesalers to stock up on scarce inventory as a result of snarled supply chains, it was only a matter of time before the US economy was roiled by a "bullwhip" (or whiplash) effect. Some details for those unfamiliar with this concept: the bullwhip effect occurs when a drop in customer demand causes retailers to under stock. In turn, wholesalers respond to a lack of retail orders by understocking themselves. That then causes manufacturers to slow production. Eventually the reverse occurs. As customer demand comes back, retailers quickly order more goods, often too much, and wholesalers and factories are caught short. Shortages occur, prices increase. Eventually production ramps up at levels that are far beyond equilibrium levels and this cascades down the chain. These violent swings in availability of goods then continue back and forth until an equilibrium is eventually established. Last May, the beginning of the bullwhip effect was seen in the way retailers and wholesalers managed their inventory levels since the outbreak of covid. Specifically, retailers kept a supply of inventory at a relatively constant level, above that of wholesalers. As covid hit, supply chains from Asia were cut which caused a fright amongst retailers in the West who immediately began to put in orders for more inventory. A whole lot more of it. Subsequent lockdowns saw demand plummet and inventories along with it. In both cases, the actions of wholesalers followed those of retailers by a month or so. In the context of a starting bullwhip effect, Templeman's conclusion was accurate: "As inventory levels have fallen to multi-decade lows at retailers, there are likely many businesses that will not have enough inventory to satisfy customers as economies recover and pent-up demand is unleashed. This is particularly the case as retailers are far more reliant on just-in-time supply chains than they were in decades past." Among other things, this is also why last May is when a historic bout of inflation was unleashed (one which not a single career economist or Fed official predicted correctly) as collapsing inventories and lack of restocking by jammed up supply chains meant that prices for goods would keep rising and rising and rising. And they did. Of course, for much of the past year, the big story was the congestion at west coast ports due to both external (China covid breakouts, port closures, changing legislation) and internal factors (lack of port workers, downstream supply jams including trucking and trains, etc) but that has now changed and as the latest Supply Chain Congestion Monitor report from JPMorgan (available to pro subscribers in the usual place) shows, the number of ships at anchor and on approach to L.A. and Long Beach has collapsed since the January high mark, and is back to levels first seen at the start of the covid pandemic. Why does this matter? Well, for a simple but critical reason: if one year ago we saw the hyperinflationary start of the bullwhip effect, we have entered the terminal phase of the "bullwhip effect", where plunging inventory-to-sales ratios reverse violently higher, where supply chains unclog suddenly and rapidly amid a sudden chill in the economy, and where prices for so-called "core" goods collapse almost overnight, even as non-core prices (food and energy) explode even higher. This is how Freight Waves discussed this effect on Friday when commenting on the recent dire earnings (and outlook) from the largest US retailers such as Walmart and Target, which saw their prices crater as management warned that inflation is now crippling demand and snuffing profit margins: "furniture, home furnishings and appliances, building materials and garden equipment, and a category known as “other general merchandise,” which includes Walmart and Target, among others, reported higher inventory-to-sales ratios, according to government data analyzed by Michigan State." How much higher? A quick look at the latest data reveals the following stunning chart of the Inventory to Sales ratio at the Walmarts of the world at the highest level since just before the deflationary flashbang that was the Global Financial Crisis: Think: widespread inventory liquidations. As Freight Waves continues, "the change has happened fast, according to Jason Miller, logistics professor at MSU’s Eli Broad College of Business. As of November, inventory-to-sales ratios were at pre-COVID levels, Miller said. They have since exploded upward. Miller said he expects a “cooldown” in retailer order volumes, even if inflation-adjusted sales stay constant, as retailers look to reduce their existing stock." And here is the punchline: Miller "also expects retailers to launch major discounting programs to expedite the inventory burn." In short: we are about to see the mother of all liquidations as retailers scramble to unload inventory in a time off rampant demand destruction. The immediate result is the freight recession that was first (correctly) forecast by FreightWaves CEO Craig Fuller at the end of March and which is now coming true as the crashing stock price of countless trucker and other freight stocks has demonstrated. Some more on this: high inventory levels are an expected occurrence and should be welcomed. In a Tuesday note, Amit Mehrotra, transport analyst at Deutsche Bank, said rising buffer stock is part of retailers’ desire to have goods available when consumers scan the shelves. Mehrotra added, however, that the data points translate into a likely slowdown in freight flows in the coming months and quarters. He said that a recession is already priced into most transportation equities, noting that the shares of most trucking companies are higher over the past 30 days while the broader market is about 7% lower. The latest data also confirms what FreightWaves' Fuller said in a subsequent post when he wondered if "Deflation Was Next" as "the Bullwhip was about do the Fed's job on inflation." To be sure, not every product will see its price cut: commodities, whose bullwhip effect take much longer to manifest itself, usually lasting several years in either direction, are only just starting to see their price cycle higher. However, other products - like those carried by the Walmarts and Targets of the world - are about to see a deflationary plunge the likes of which we have not seen since the global financial crisis as retailers commence a voluntary destocking wave the likes of which have not been seen in over a decade. Tyler Durden Sun, 05/22/2022 - 21:45.....»»
Upstate United — a business advocacy group focused on growing the upstate New York economy — and the National Federation of Independent Business of New York are watching legislation that the groups say would seriously hurt businesses and consumers......»»
Hedge Fund CIO: If We Can't Bounce After Being Down 7 Weeks In A Row, Something Is Seriously Wrong By Eric Peters, CIO of One River Asset Management “Biggie’s bearish and annoying, ignored,” bellowed Biggie Too, 3rd person. “That’s how the crowd treats Biggie when these cycles get started, when stocks are still at their highs and Biggie turns bearish,” said the chief global strategist for one of Wall Street’s too-big-to-fail affairs, one of only a few such cats to call this market right. “Biggie’s bearish and they congratulate, kiss Biggie’s ring -- that’s step Number Two,” barked Biggie, slipping into a slow groove, hands in the air holding two fingers up. “Step Number Three -- Biggie stays bearish, and the crowd hates Biggie,” said Too, sharing Biggie’s Three-Step Market Manual. “If we can’t bounce after being down seven weeks in a row, something’s seriously wrong with this market. But you gotta get to Number Three before the big bottom is in. And Biggie’s still stuck somewhere in step Number Two – getting lotta praise, no haters, no hate mail. Not yet.” Overall: “Achieving price stability, restoring price stability, is an unconditional need,” said Jerome Powell. “Something we have to do because really the economy doesn't work for workers or for businesses or for anybody without price stability. It’s the bedrock of the economy really,” added the Fed Chairman. “If that involves moving past broadly understood levels of ‘neutral’ we won't hesitate to do that,” he said, calm, threatening. “We will go until we feel we are at a place where we can say ‘yes, financial conditions are at an appropriate place, we see inflation coming down.’” It’s been decades since a Fed Chairman told investors to sell rallies until inflation cools or something breaks. US equities closed the week lower again, a historic run, but devoid of panic. It’s a market re-price, not a fracture, a break, at least not yet. “It’s in everyone’s interest for both the US and EU to make investments in a coordinated way that deepens the entire ecosystem of the semiconductor supply chain,” said US Commerce Secretary Raimondo, unveiling initiatives in high-tech, AI, industrial standards, and global food security. “It will be good for both industry and national security,” she added, as the US and Europe retreat to a fractured world of trading blocs, security alliances. Echoes of Europe’s disastrous dependency on Russian energy exports are found in the West’s reliance on Taiwanese semiconductors and Chinese technology, rare earths. “We intend to exclude Huawei and ZTE from our 5G networks,” said Canada’s Industry Minister Francois-Philippe Champagne, joining the rest of the Five Eyes intelligence sharing network. “Providers who already have this equipment installed will be required to cease its use and remove it under the plans we’re announcing today.” Beijing banned senior officials from owning overseas assets or stakes in foreign entities, whether directly or through spouses, children. Xi naturally wants to insulate his politicians from Western influence/sanctions in a conflict. The most consequential redrawing of global relations since WWII has begun. So far it has produced a re-price, not a market fracture. At least not yet. Tyler Durden Sun, 05/22/2022 - 18:50.....»»
Key Words: U.S. economy ‘in a better position’ than most countries despite recession risk, Biden adviser says
President Joe Biden’s top economic adviser said Sunday that the risk of a recession can’t be dismissed, but that the U.S. is still doing well as compared with the rest of the world......»»
"The Fed Has No Idea How Bad It Is Out There" So Here's Some Context... To quote Jim Cramer circa August 2007, "the Fed has no idea how bad it is out there" and 15 years later his rant is just as applicable, in a market that has rarely been uglier. So to help the Fed - and all those other traders who still refuse to panic even though they probably should (according to Goldman, over the past 15 years, there have been 36 daily selloffs of 4% or more, and the VIX was never as low as it was on Wednesday), here's some context courtesy of DB's Jim Reid to show just how bad it is. Quoting DB's chief equity strategist, Binky Chadha, Reid notes that the current -18.7% correction is actually the 6th largest non-recession (so far) correction in post WWII history, only behind > July-98 (around LTCM and Russia default), > Sept-18 (QT and Fed hikes finally bite), > May-46 (post WWII), > Dec-61 (so called Kennedy slide) and finally > Aug-87 (including the Oct-87 crash). Of course, if one includes recessions, there are fifteen larger post WWII sell-offs with the median recession sell-off at -23.9%. From here, the Deutsche Banker - who alone among his Wall Street peers has forecast a US recession in 2023 - expects the US to move towards the average recession decline in the near term which would put the S&P 500 at 3650 (current 3900), a similar near-term view to that of Morgan Stanley's Michael Wilson. At this point, markets become remarkably binary. In the event we do slide into recession, the Deutsche Bank strategists see the sell-off going well above average, i.e., into the upper half of the historical range given elevated initial overvaluation. This means -35% to -40% or S&P 500 at 3000. However, in the event we do not and growth and the labor market hold up in 2022 - which they won't - they expect the market to rally back to 4700-4800 by year-end as equity positioning rebounds from very low levels. And just to add another twist, while Binky’s baseline view is that the economy doesn’t slide into recession this year and the S&P 500 ends the year at 4750. However, that's before the economy does slide into a recession next year. So clearly, Jim writes, "if the recession then comes in 2023 markets can again price in a recession and see dramatic falls", meaning non-stop market rollercoasters for the next two years. Indeed, as Reid concludes, "one thing is clear. This is not a market for the faint hearted!" There is more in the full piece from Binky Chadha for valuations, sell-offs in historical context, signs of late (but not yet end) cycle, sector analysis and positioning, available to professional subs in the usual place. Tyler Durden Sun, 05/22/2022 - 18:25.....»»
Pennsylvania Democratic gubernatorial nominee Josh Shapiro blasts GOP opponent Doug Mastriano as "dangerous" and "extreme"
"He is someone who wants to overturn not just the last election, but has made clear that he would pick the winner of the next one," Shapiro warned. Pennsylvania Attorney General Josh Shapiro.AP Photo/Matt Rourke Pa. AG Josh Shapiro on Sunday blasted GOP state Sen. Doug Mastriano as "dangerous" and "divisive." "He thinks climate change is fake," Shapiro said on CNN. "The contrast couldn't be clearer." Shapiro ran unopposed in the Democratic party's gubernatorial primary, and will face Mastriano in November. Pennsylvania Attorney General Josh Shapiro, the state's Democratic gubernatorial nominee, blasted his Republican general election opponent, conservative state Sen. Doug Mastriano, as "dangerous" and "divisive."During an interview on CNN's "State of the Union," Shapiro pointed to a range of issues from abortion to election integrity in contending that Mastriano's views are outside of the political mainstream."He is extreme and he is dangerous," the two-term attorney general told host Dana Bash. "He would ban all abortion and jail doctors who perform it. He was there on January 6, and when the police told him to stop at the barricades, he kept marching. He is someone who wants to overturn not just the last election, but has made clear that he would pick the winner of the next one."Shapiro — who ran unopposed for the Democratic nomination — also called out Mastriano on marriage equality and his stance on climate change.—CNN (@CNN) May 22, 2022"He wants to make it illegal to have same-sex marriage in Pennsylvania," he said. "He thinks climate change is fake. He is a danger. The contrast couldn't be clearer."He continued: "We will continue to point out those clear differences. I've been focused on a future for Pennsylvania that grows our economy, that improves our schools, that makes sure that we have safe communities. He's been focused on re-litigating the past. He is dangerous and he is divisive."Mastriano — who has been a huge proponent of former President Donald Trump's debunked election claims and has pledged to take the swing state in a deeply conservative direction — was endorsed by the former president earlier this month.In winning the multicandidate GOP primary, Mastriano secured 43 percent of the vote — well ahead of the second-place finisher, former Rep. Lou Barletta, who received 20 percent of the vote.The winner of the general election will succeed Democratic Gov. Tom Wolf, who cannot run again due to term limits.Read the original article on Business Insider.....»»
MarketsThe worst years in the U.S. stock market have historically led to good future returns. (awealthofcommonsense.com)Why the bond bear market may already be over. (pragcap.com)StrategyAn eight-step plan for dealing with a bear market including 'Check your expectations.' (morningstar.com)Seven questions about the economy and stock market including 'How will rapidly rising mortgage rates impact housing prices?' (awealthofcommonsense.com)CryptoWhy this cryptocurrency crash is different. (theatlantic.com)The Ethereum network is getting closer to a big overhaul. (fortune.com)It looks like crypto has its own insider selling problem. (investmentnews.com)CompaniesWhy the downturn could enhance the power of Big Tech. (nytimes.com)How inflation affects companies differently. (aswathdamodaran.blogspot.com)Where Peloton ($PTON) went wrong: assuming the good times would last. (wsj.com)Tesla ($TSLA) has more problems than just a an unhinged CEO. (nytimes.com)StartupsM.G. Siegler, "Timing can make great companies look dumb and dumb companies look great." (500ish.com)Not every startup is in the same boat. (crossstack.substack.com)The private markets are filled with overpriced companies. (howardlindzon.com)It's going to take a while to work through the problems in VC land. (avc.com)GlobalThe case for a global recession is growing. (ft.com)Who won the China-U.S. trade war? Probably Vietnam... (wsj.com)Mum's the word. The NBA is back on in China. (espn.com)PolicyWhat lessons can we take away from the fiscal response to Covid? (stayathomemacro.substack.com)Pandemic relief programs were beset with fraud. (washingtonpost.com)Why so many public health officials left in the wake of the pandemic. (scientificamerican.com)Why does the U.S. Supreme Court still not have a formal ethics code? (theatlantic.com)Mass shooters, by and large, get their guns legally. (nytimes.com)EconomyWhy inflation is likely set to cool, including improving supply chains. (tker.co)The economic schedule for the coming week. (calculatedriskblog.com)Earlier on Abnormal ReturnsTop clicks last week on the site. (abnormalreturns.com)What you missed in our Saturday linkfest. (abnormalreturns.com)Podcast links: identifying talent. (abnormalreturns.com)Things are tough out there. Here is some required bear market reading. (abnormalreturns.com)A Q&A with Brian Feroldi author of “Why Does the Stock Market Go Up.” (abnormalreturns.com)Writing IS thinking. (abnormalreturns.com)Are you a financial adviser looking for some out-of-the-box thinking? Then check out our weekly e-mail newsletter. (newsletter.abnormalreturns.com)Mixed mediaA review of "Talent: How to Identify Energizers, Creatives, and Winners Around the World," by Tyler Cowen and Daniel Gross. (city-journal.org)Why working through a Covid infection is a bad idea for everyone involved. (annehelen.substack.com)When it comes to hybrid work everyone is just winging it. (nytimes.com).....»»
Goldman Trader: After A Brutal Week, Here Is The "Cat And Mouse" Question That Needs To Be Answered From Tony Pasquariello, Goldman head of hedge fund coverage Cat and Mouse A brutal week in the markets, with no shortage of blame to go around: the persistence of global central bank hawkishness, gathering recession concerns, ongoing retail liquidation (and, an element of reflexivity). Here’s the central question that I’m trying to work out: if the interest rate market is correct, and terminal Fed Funds rate is going to be somewhere around 3%, at what point is that fully priced into the broader markets? On one hand, there’s already been a very significant tightening of US financial conditions, so you could argue that we’re getting close. Said another way: you know that financial markets live in the future ... so, when the day comes where everyone can clearly see the end of the tightening cycle, the trading community will be ahead of it and assets will already be on the move. On the other hand, the target rate is still south of 1% and core PCE is still north of 5%, so you could also argue that we’re still much closer to the start of this tightening cycle than to the end of it [for a more detailed discussion, see "The Fed Has Crossed The "Hard Landing" Rubicon So How High Will It Hike? One Bank Crunches The Numbers"]. Said yet another way: as long as inflation is running hot and the labor market is too tight ... again, the inconvenient truth is the Fed has more wood to chop and the markets have more risk to sort out. In a related vein: at what point does the FOMC view an easing of financial conditions and decide that they DON’T need to beat it back? In that spirit, cue Bill Dudley (link): “the Fed has to be happy with the fact that financial conditions have tightened ... they’re getting traction ... they still have to do what they said they’re going to do.” With apologies for thinking out loud here, it’s these type of cat-and-mouse questions that illustrate the difficulty of assessing the current interplay between the Fed and the asset markets. To be sure, the task of culling jobs is hugely unenviable, but the Fed is still so far off the inflation mark; at the very least, they need to demonstrate the trajectory of core inflation is clearly headed lower, even if they ultimately lose their nerve before reaching 2.0% [maybe the Fed is not so far off: see "Fed Mission Accomplished: Real-Time Indicators Show The Labor Market Just Cratered"]. On that last point, as Joe Briggs in GIR pointed out to me, the FOMC actually sent a similar signal with their March SEP dots, which showed 3½ hikes in 2023 and 0 hikes in 2024 ... despite median inflation forecasts of 2.6% in 2023 and 2.3% in 2024. Here’s where I’m going with all of this: even though financial conditions have tightened considerably ... and, even though this Fed will likely back off once the jobs losses begin to mount (they’re the same folks who ran the AIT play, after all) ... the fact is there’s still a lot of ground to cover before they can declare victory over inflation ... which should keep some pressure on risk assets a bit longer. To add another layer of complexity: as Dominic Wilson in GIR pointed out to me, the stock market usually bottoms when the Fed flinches (see early ’16, early ’19) ... or, if there’s a real growth problem, when the second derivative of economic activity turns (see Mar ’09, Apr ’20). In that context, again my instinct is we’re just not there yet -- not only does the Fed put feel both smaller and farther out of the money than we’ve been accustomed to for a long time (arguably since the post-1994 era began), but the longer the tightening cycle rolls along, and the higher the unemployment rate goes, the more the markets will rightly worry about a recession (even if you believe, as I do, that the US economy is durable with plenty of nominal GDP still sloshing around). I’ll conclude this narrative with a chart, to followed by quick points and more charts ... I can find no better illustration of what’s currently challenging the stock market than this (link): 1-a. on the positioning front, the glaring wedge between hedge funds and households persists: i. GS Prime Brokerage data reflects some of the largest reduction of leverage on record (link). n/b: I suspect the huge underperformance of implied volatility traces back to this point (which, for those watching, has been an immense oddity -- over the past 15 years, there have been 36 daily selloffs of 4% or more, and the VIX was never as low as it was on Wednesday). ii. that said, I continue to worry about the impact of US households de-risking. here’s one way to frame it: total fund inflows from November of 2020 through March of 2022 were $1.34tr ... since the tide turned seven weeks ago, we’ve only unwound $47bn. iii. given immense ownership differentials -- see chart 11 below for an illustration of how huge households are -- to my eye this nets out in favor of the bears. now, if there’s a group who can help diffuse the supply/demand problem, it’s US corporates (yes, buyback activity through our franchise has picked up meaningfully over recent weeks). 1-b. A related point: as detailed by the WSJ (link) and our own team (link), the retail investor is quickly exiting the call option party. to make the point: in the pre-COVID era, average daily notional in call options on US single stocks was around $100bn. At the peak in November of 2021 -- which is when a number of high velocity stocks put in their highs -- it was around $500bn. Fast forward to today, and we’re back down to $185bn/day. 2. The recent period has been a textbook illustration of the stark difference between volume and liquidity: volume in cash equities has never been higher (e.g. an average of 12.7bn shares per day in 2021, which is nearly 2x the run rate of 2019) ... yet, top-of-book liquidity in S&P futures registers in just the 3rd percentile of the past six years. 3. despite the ongoing selloff, the past few weeks have also brought moments that illustrate the difficulty of trading stocks from the short side, even if this is a bear market. see chart 12 below, or witness daily price action in a custom basket of popular shorts, ticker GSCBMSAL. For the most short-term macro traders amongst you, if you want to play S&P from the short side, my sincere advice is to go home flat each night and reassess tomorrow morning -- this is a market to be traded, aggressively, but with extreme discipline. An alternative to this ultra-tactical approach is to utilize put spreads or 1-day gamma (ideas available). 4. I’m no expert in crude oil, but I’ve probably spent 10,000 hours with those who are, so here’s a bullish take: despite a record SPR release, a very strong dollar, shutdowns in the second largest economy on the planet and a break lower in most all risky assets, crude oil has largely stood its ground ... you can probably see where I’m going with this. For the take of an expert, this note is worth a glance, the (surprising) punch line as I read it: “own commodities as financial conditions tighten. in the past, spot and roll returns performed well when real rates rose, and particularly when financial conditions additionally tightened” (link). 5. US consumption: again, I worry a lot about building pressures on the low end consumer. While parts of this week’s data set were encouraging -- namely HD and government retail sales data -- what we heard from WMT and TGT was brutally clear: in addition to shipping and inventory issues, the cost of food and fuel is impinging on the US consumer. This, as much as anything, was THE story of the week. On the other end of the spectrum, high end consumption is still off the charts (witness recent news stories on Manhattan real estate, art or fine wines). I continue to think the medium-term reckoning of this wedge takes the form of ... higher taxes. 6. on US housing, I admit that a profoundly positive story has gotten a lot more complicated. On one hand, supply/demand favors ongoing strength. On the other hand, affordability seems to be a serious issue, and the move in mortgage rates is very significant. Where do we come out? As Jan Hatzius in GIR put it to me, informally, there’s not necessarily a clear conclusion: “We cut our forecasts on homebuilding activity and house prices modestly, but the shortage of houses and overall tightness of the market should substantially dampen pressure on the sector.” If you’re interested, we have some interesting charts on this topic. 7. China: the data is so bad, it’s simply eye-popping (witness the worst IP print on record). In fact, GIR has cut our expectation of 2022 Chinese GDP growth to just 4%, which ex-2020 would be the slowest growth rate since ... 1990 (link). for the sake of balance, Shanghai is set to reopen on June 1st and I suspect foreign trading length is approaching rock bottom. For a balanced and comprehensive assessment of the regional economic outlook, this is worth a glance: link. 8. This is, if nothing else, some interesting brain food. I asked Daniel Chavez in GIR to mark the moves in the COVID era in some popular assets. There are a lot of ways to approach this choose-your-own-adventure; the way we cut it was total returns from the lows of March 2020 to the highs (in NDX) of November of 2021 ... then from the November highs to today ... and then from the pre-COVID highs to today. A few things stick out to me, here’s one: point-to-point across the full COVID era, US energy stocks have far outperformed the stay-at-home stocks: 9. In a related spirit, and with credit to sales & trading colleague Brian Friedman, if you look the overlay of NDX P/E (white) with inverted 30-year US real yields (yellow), equities are doing what the move in real rates would suggest they should be doing: 10. With credit to David Kostin in GIR, here’s a bigger picture on tech. For all of the recent troubles, you still have to marvel at the sustained growth of US mega cap names. now I suppose the mega question is ... would you be willing to fade the broad pattern of this chart: 11. Another level set from GIR ... which, again, illustrates the size of households vs hedge funds (** 2% **) in the domestic equity market: 12. with credit to a client, an analog from the aftermath of the immediate aftermath in the LEH period, which again illustrates the difficulty of being short in the middle or late stages of a bear market: 13. Finally, and to continue the recent thread, this is a powerful chart of de-globalization ... If this were a chart of a security, I’d be inclined to sell it (link) Tyler Durden Sun, 05/22/2022 - 13:50.....»»
Morgan Stanley: We Are About To Find Out The Cost Of Remodeling A Global Economy By Michael Zezas, Head of Public Policy Research at Morgan Stanley What’s the cost of remodeling a global economy? What’s the benefit? Ready or not, we’re about to find out. Why? Because geopolitical events are accelerating important secular trends: The “slowbalization” of economic and national interests eating away at globalization; and The shift from a single economic power base and set of rules to a “multipolar world.” While the sell-off in risk markets is getting attention now, our conversations with corporate decision-makers and policy-makers are increasingly taken up with how to deal with these two important and overlapping transitions. These decisions have long-term consequences, so investors need to understand how their choices may play out. Our latest Blue Paper is a guide to navigating these secular trends, with frameworks we developed in 2019 ("The Slowbalization Playbook") and 2020 ("Investing for a Multipolar World", both reports are available to zerohedge professional subscribers). For the sake of your Sunday, here’s what you need to know, in brief: Geopolitics are accelerating slowbalization and the multipolar world, providing more incentives to near-shore or “friend-shore” supply chains: To be clear, these trends didn’t start with Russia invading Ukraine or even US/China trade tensions. Services trade was already outpacing goods trade, and automation has been reducing the primacy of low-cost labor. But the incentives for companies and policy-makers to rethink globalization have been amplified by recent geopolitical developments. A bipartisan consensus emerged in the US around an existential need to outcompete China. The result in 2018 was tariff and non-tariff barriers (i.e., export restrictions), the latter meant to protect the US advantage in key technologies. We expect these barriers to endure and boost costs beyond the directly taxed sectors, like semis, to industries like auto batteries and AI that are adopting these new technologies. The pandemic served painful notice for some sectors that paying up for ”just in case” instead of “just in time” inventories might be the only way to avoid the supply chain bottlenecks caused by lockdowns, mask mandates, or other restrictions. And Russia’s invasion of Ukraine and the subsequent sanctions cut off exports of energy and agricultural products to Europe and other parts of the globe. Relying on allies rather than rivals yields supply chain security. With transitions come costs and lingering inflation… Consider that Europe now is eager to build infrastructure to import natural gas from the US to avoid reliance on Russia. Or consider a hypothetical American multinational moving some of its production out of China to avoid new US export controls. This shift comes not only with a cost but also fresh uncertainties around labor and infrastructure in the new locale. Our equity research colleagues believe that profit margins could face headwinds in sectors like European chemicals, European and Asian midstream and downstream natural gas utilities, auto OEMs, consumer staples, portions of leisure, and transportation. ...but transitions also drive opportunity. All this "geopolitical capex" has to drive capital somewhere. Some geographies and sectors are likely beneficiaries: For US and European companies, friend-shoring is more attractive in countries with larger labor pools, competitive wage costs, and trade agreements with key end markets. In varying ways and to varying degrees, Mexico, India, and Turkey are recipient candidates. And regardless of the location, building these new supply chains will almost surely drive a pick-up in demand – and profits – in sectors like semiconductor capital equipment, automation, clean tech, defense/cybersecurity, industrial gases, cap goods, and metals/mining. Of course, this transition is a multi-year project. And as in any remodel, we expect many hidden costs and benefits to emerge along the way. We’ll keep updating our playbook, and you, as we move through the process. Tyler Durden Sun, 05/22/2022 - 14:40.....»»
What's Up With Gold? Authored by MN Gordon via EconomicPrism.com, Amidst a backdrop of raging consumer price inflation something strange and unexpected is going on. The U.S. dollar has become more valuable. Not against goods and services. But against foreign currencies. For example, the U.S. dollar index, which is a measure of the value of the dollar relative to a basket of foreign currencies, recently crossed the 105 level. This marks its highest level since December 2002. Not since tech stocks were in full meltdown in 2002 has the dollar been so strong. Without questions, the dollar’s had quite a run. The dollar index increased over 6 percent in 2021. So far in 2022, it has already gained over 7 percent. And, for the time being, and despite shortsighted dollar weaponization policies, the dollar is preserving its reserve currency status. This week, the dollar index did retreat slightly…at market close Thursday (May 19) it stood at 102.91. Maybe the dollar has peaked. Or maybe this is just a period of consolidation before its springs upward. From a historical perspective the dollar could go much, much higher. In the mid-1980s, for instance, the dollar index hit 164. Of course, the world was much different back then. The euro didn’t even exist. From our perspective, it seems unlikely the dollar index could hit its old high from nearly 40 years ago. But it does seem likely the dollar could hit parity with the euro for the first time in 20 years. Slow growth and high inflation in Europe could continue to be a drag on the euro. In addition, the Russia-Ukraine war, and the resulting supply chain disruptions to natural gas imports in Europe, points to a weaker euro ahead. So what are we left with? Somehow, with all its faults and foibles, the dollar is perceived to be an interim safe haven asset. Somehow, with its 75 basis points in rate hikes this year, the Federal Reserve is perceived as being hawkish on inflation. Somehow the dollar, and dollar based investments, have become attractive to foreign investors. What’s going on… Insufficient Explanation You’ve likely heard the well-worn metaphors. The dollar’s the cleanest shirt in the dirty laundry basket of fiat money. The dollar’s the best house in a bad neighborhood. Does this really explain what’s going on? Maybe. At least for now, it offers a partial and insufficient explanation. As noted above, the euro is haggard. But it’s not just the euro… In Japan, the situation is quite different. Inflation is just 1.2 percent – compared to 8.3 percent in the U.S. Following the simultaneous meltdown of the Japanese NIKKEI and the Japanese real estate market in 1989 the Bank of Japan (BOJ) has tried just about everything to compel inflation higher. The BOJ has tried policies of unlimited bond buying. It has also pumped massive amounts of printing press money into Japanese stocks via exchange traded funds. It has splattered the countryside with concrete under the guise of public works spending. For its efforts, the central bank has driven Japan’s debt to GDP ratio to over 250 percent. Still, inflation has remained elusive. Thus since the BOJ wants higher inflation, and is unlikely to hike interest rates like its cohorts at the Fed, the Japanese yen is staying comparatively weak against the dollar. That’s the popular story, at least. The rationale, no doubt, is rather suspect. At the same time, Beijing’s control freak zero-COVID policies have transformed the Chinese yuan into panda turds. For these reasons, and many more, the U.S. dollar is in high demand. The whole thing seems rather farcical. On a relative basis the dollar may be strong. But it’s still doomed…just like all fiat currencies. So, what’s up with gold? What’s Up With Gold? U.S. based gold investors may be frustrated by the dollar’s strength. With consumer price inflation raging at a 40 year high, shouldn’t the price of gold be shooting to the moon? Simple logic says yes. Gold is a venerable hedge against inflation. Consumer price inflation is raging out of control. Therefore, gold, as priced in dollars, should be adjusting upward. But that’s not what’s happening. At least not yet. After hitting $2,039 per ounce in early March, the price of gold, in dollar terms, is down 9.7 percent. If you’re sitting on a pile of cash, now’s certainly a good time to trade some of it in for gold bullion coins – and silver too. Remember, gold is for long term wealth preservation and not for short term speculation. Owning gold sets you free from the destructive money debasement policies of central bankers and centrally planned governments. And owning gold will be especially important when the dollar turns later this year – if it didn’t already turn this week. You see, the U.S. economy is entering a recession. In fact, it may already be in one. U.S. GDP shrank by 1.4 percent during the first-quarter of 2022. The stock market, sensing the weakness, is in full meltdown. With this backdrop, Fed Chair Jay Powell is staring down a difficult choice. Continue to hike interest rates in the face of a recession? Or reverse course, support financial markets, and let inflation run? What will he do? We anticipate he’ll do both… The Fed will likely hike rates another 50 basis points following the June FOMC meeting. It needs to put on a show of strength to restore any semblance of credibility after boofing it so hard with its “inflation is transitory” shtick. By mid-summer, however, it will be clear the U.S. economy is in a recession. The Fed will then pause its rate hikes, and then start cutting rates. Under this scenario, the dollar will turn from sirloin to bottom round. This is when gold will really shine. If you recall, the last time the dollar was this strong – back in 2002 – an ounce of gold cost about $320. Over the next nine years, an ounce of gold, priced in dollars, increased by 490 percent to about $1,900. Given the monetary shenanigans and outright policies of extreme dollar destruction that have occurred over the last 14 years, the relative increase in gold’s price in dollar terms should dwarf the move that occurred during the first decade of the 21st century. Tyler Durden Sun, 05/22/2022 - 13:00.....»»
Freedom And Sound Money: Two Sides Of A Coin Authored by Thorsten Polleit via The Mises Institute, It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right. So wrote Ludwig von Mises in The Theory of Money and Credit in 1912. And further: The sound-money principle has two aspects. It is affirmative in approving the market's choice of a commonly used medium of exchange. It is negative in obstructing the government's propensity to meddle with the currency system. Against this backdrop, modern day monetary systems appear to have been drifting farther and farther away from the sound money principle in the last decades. In all countries of the so-called free world, money represents nowadays a government controlled irredeemable paper, or "fiat," money standard. The widely held view is that this money system would be compatible with the ideal of a free society and conducive to sustainable output and employment growth. To be sure, there are voices calling for caution. Taking a historical viewpoint, Milton Friedman stated: The world is now engaged in a great experiment to see whether it can fashion a different anchor, one that depends on government restraint rather than on the costs of acquiring a physical commodity. Irving Fisher, evaluating past experience, wrote: "Irredeemable paper money has almost invariably proved a curse to the country employing it." The primary cause for concern rests on a key characteristic of government controlled paper money: the system's unrestrained ability to expand money and credit supply. In contrast, under the (freely chosen) gold standard, money (e.g., gold) supply was expected to increase as well over time, but only in proportion to how the economy expanded—i.e., an increase in money demand, brought about by an increase in economic activity, would bring additional gold supply to the market (by, for instance, increased mining which would become increasingly profitable). As such, the gold standard puts an "automatic break" on money expansion—the latter would be, at least in theory, related to the economy's growth trend. The government controlled fiat money system has no inherent limit to money and credit expansion. In fact, quite the opposite holds true: Central banks, the monopolistic suppliers of governments' money, have actually been deliberately designed to be able to change money and credit supply by actually any amount at any time. To prevent abuse of their unlimited power over the quantity of money supply, most central banks have been granted political independence over the past decades. This has been done in order to keep politicians who, in order to get reelected, from trading off the benefits of a monetary policy induced stimulus to the economy against future costs in the form of inflation. In addition, many central banks have been mandated to seek low and stable inflation—measured by consumer price indices—as their primary objective. These two institutional factors—political independency and the mandate to preserve the purchasing power of money—are now widely seen as proper guarantees for preserving sound money. Be that as it may, Mises's concerns appear as relevant as ever: The dissociation of the currencies from a definitive and unchangeable gold parity has made the value of money a plaything of politics…. We are not very far now from a state of affairs in which "economic policy" is primarily understood to mean the question of influencing the purchasing power of money. Whereas the objective to preserve the value of government controlled paper money appears to be a laudable one, the truth is that it is (virtually) impossible to deliver on such a promise. In fact, there are often overwhelming political-economic incentives for a society to increase its money and credit supply, if possible, in order to influence societal developments according to ideological preset designs rather than relying on free market principles. This very tendency is particularly evidenced by the fact that central banks are regularly called upon to take into account output growth and the economy's job situation when setting interest rates. And these considerations are what seem to cause severe problems in a paper money system if and when there is no clear-cut limit to money and credit expansion. To bring home this point, it is instructive to take a brief look at the relationship between credit and nominal output and "wealth" growth (which is defined here, for simplicity, as gross domestic product plus stock market capitalization). The figure below shows the annual changes of US nominal gross domestic product (GDP) and bank credit in percent from 1974 to the beginning of 2022. As can be seen, both series are positively correlated in the period under review: On average, rising output had been accompanied by rising bank credit and vice versa. It is actually an instructive illustration of the Austrian business cycle theory (ABCT), which holds that the expansion of bank credit is not only closely associated with a boom-and-bust cycle, affecting both real magnitudes and goods prices, but its driving force. Also from 1974 to the beginning of 2022, the following figure shows the US money stock in billions of US dollars and the S&P 500 stock market index. The rising money stock is basically the re of result of the expansion of bank credit—through which new money is created. As can be seen, the development of the money stock trends on the same wavelength as the stock market. Why? On the one hand, the increase in nominal GDP over time is reflected in rising values of corporate valuations. On the other hand, the rising money stock pushes goods prices up, including stock prices. In other words: The stock market performance is—sometimes more so, sometimes less so—attributable to the fiat-money-caused goods price inflation. From the end of 2019 to the first quarter 2022 the US central bank increased the money stock M2 by 43 percent, while the stock market gained 63 percent in the same period. As the increase in the money stock helped inflating nominal GDP, it also translated into (substantially) higher stock prices. In other words: The monetary expansion caused "asset price inflation." Looking at these charts, the message seems to be: The chronic increase in credit and money supply has, on average, been "quite positive" for output and wealth. However, this would be a rather shortsighted interpretation. For a fiat money system, the expansion of credit and money makes a few benefit at the expense of many others. What is more, its "invisible effect" is that it prevents all the economic success and the resulting distributive income and wealth effects that had occurred had there not been an issuance of additional credit and fiat money. As even classical economic theorists warn, a money- and credit-induced stimulus to the economy is (as the ABCT shows) short-lived and will eventually lead to inflation, as outlined by David Hume in 1742: Augmentation (in the quantity of money) has no other effect than to heighten the price of labour and commodities…. in the progress towards these changes, the augmentation may have some influence, by exciting industry, but after the prices are settled … it has no manner of influence. However, the today's intellectual conviction of the economic mainstream, which is dominated by Keynesian economics, is that by lowering interest rates the central bank can stimulate growth and employment. So it does not take wonder that, especially so in periods in which inflation is seen to be "under control," central banks are pressured into an "expansionary" monetary policy to fight recession. In fact, it is widely considered "appropriate" if monetary policy keeps borrowing costs at the lowest level possible. In the work of Mises one finds a well-founded criticism of this broadly held conviction. He writes: Public opinion is prone to see in interest nothing but a merely institutional obstacle to the expansion of production. It does not realize that the discount of future goods as against present goods is a necessary and eternal category of human action and cannot be abolished by bank manipulation. In the eyes of cranks and demagogues, interest is a product of the sinister machinations of rugged exploiters. The age-old disapprobation of interest has been fully revived by modern interventionism. It clings to the dogma that it is one of the foremost duties of good government to lower the rate of interest as far as possible or to abolish it altogether. All present-day governments are fanatically committed to an easy money policy. Mises also outlines what the propensity to lower interest rates and increasing money and credit supply does to the economy. The Austrian school's monetary theory of the trade cycle maintains that it is monetary expansion which is at the heart of the economies' boom and bust cycles. Overly generous supply of money and credit induces what is usually called an "economic upswing." In it's wake, economic growth increases and employment rises. With the liquidity flush, however, come misalignments, a distortion of relative prices, so the theoretical reasoning is. Sooner or later, the artificial money and credit-fueled expansion is unsustainable and turns into a recession. In ignorance and/or in failing to identify the very forces responsible for the economic malaise, namely excessive money and credit creation in the past, falling output and rising unemployment provoke public calls for an even easier monetary policy. Central banks are not in a position to withstand such demands if they do not have any "anchoring"—that is a (fixed) rule which restrains the increase in money and credit supply in day-to-day operations. In the absence of such a limit, central banks, confronted with a severe economic crisis, are most likely to be forced to trade off the growth and employment objective against the preserving the value of money—thereby compromising a crucial pillar of the free society. Seen against this backdrop, today's monetary policy actually resembles a lawless undertaking. The zeitgeist holds that "inflation targeting" (IT)—the so-called state-of-the-art concept, from the point of view of most central banks—will do the trick to prevent monetary policy from causing unintended trouble. In practice, however, IT does not have any external anchor. Under IT, it is the central bank itself that calculates inflation forecasts which, in turn, determine how the bank set interest rates; setting a quantitative limit to money and credit expansion is usually not seen as a policy objective. IT can thus hardly inspire confidence that it will mitigate the threat to the value of paper money stemming from governments (in the form of fraud/misuse) and/or politically independent monetary policy makers (in the form of policy mistakes). The return to "monetary policy without rule" began in the early 1990s, when various central banks abandoned monetary aggregates as a major guide post for setting interest rates. It was argued that "demand for money" had become an unstable indicator in the "short term" and that, as such, money could no longer be used as a yardstick in setting monetary policy, particularly so as policy makers were making interest rate decisions every few weeks. However, that guide post has not been replaced with anything since then. In view of the return of discretion in monetary policy, it might be insightful to quote Hayek's concern; namely, that inflation "is the inevitable result of a policy which regards all the other decisions as data to which the supply of money must be adapted so that the damage done by other measures will be as little noticed as possible." In the long run, such a policy would cause central banks to become "the captives of their own decisions, when others force them to adopt measures that they know to be harmful." Echoing the warning that Ludwig von Mises gave back in The Theory of Money and Credit, Hayek concluded: The inflationary bias of our day is largely the result of the prevalence of the short-term view, which in turns stems from the great difficulty of recognising the more remote consequences of current measures, and from the inevitable preoccupation of practical men, and particularly politicians, with the immediate problems and the achievements of near goals. What can we learn from all this? The inherent risks of today's paper money standard—the very ability of expanding the stock of money and credit at will by actually any amount at any time—are no longer paid proper attention: Putting a limit on the expansion of money and credit does not rank among the essential ingredients for "modern" monetary policy making. The discretionary handling of paper money thus increases the potential for a costly failure substantially. A first step for moving back towards the sound money principle—which is doing justice to the ideal of a free society—would be to make monetary policy limiting—e.g., stopping altogether—money supply growth. Tyler Durden Sun, 05/22/2022 - 09:20.....»»
In Insider Weekly: Wall Street's hellish summer, Airbnb host panic, and Leon Black's lawyer Danya Perry. Hi, I'm Matt Turner, the editor in chief of business at Insider. Welcome back to Insider Weekly, a roundup of some of our top stories. On the agenda today:Airbnb hosts are panicking about a summer slowdown.Our profile of Danya Perry, the attorney defending billionaire Leon Black.Can Miami's pandemic-fueled tech boom survive an industry bust?Meet 2022's rising stars of EV, from companies like Rivian and Lucid.By the way, we have a new newsletter coming soon: 10 Things on Wall Street will cover the biggest stories in banking, private equity, hedge funds, and fintech each weekday morning. Sign up here.But first: Insider senior correspondent Linette Lopez is here with a look at the market's hectic week.Subscribe to Insider for access to all our investigations and features. New to the newsletter? Sign up here. Download our app for news on the go – click here for iOS and here for Android.Wall Street's hellish summer is hereJenny Chang/Insider; Getty ImagesA week ago, I wrote that Wall Street is "heading into a summer from hell." Well, it looks like that hellish summer came early. Since I wrote that piece, the market has done almost nothing but fall, posting the worst trading days since the early weeks of the pandemic. And while the sell-off is ugly, it's clear this isn't over. The market is quickly retreating to where it was before the pandemic — and the stimulus-infused mega rally — started. And thanks to more than a decade of monumentally low interest rates, many investors think that even the current level is inflated.In the piece, I called out the tech industry, which has been riding the wave of a strong economy for years and is finally facing its first real setbacks and (in some cases) layoffs."The kiss of death for tech is when tech starts talking profitability — then the tide goes out and you'll figure out who's been swimming naked," Justin Simon, a portfolio manager at Jasper Capital, told me.But that's not all. Last week, bread-and-butter retailers Target and Walmart reported earnings that fell short of Wall Street's expectations. These consumer behemoths admitted that they are starting to feel the burn from inflation and other economic pressures.As I said in my story, "This summer, the market is melting, and investors big and small are going to get burned before it's over."Read Linette's full story here:Wall Street is heading into a summer from hell — and top investors say it's going to bring a near-biblical reckoning to the market.Airbnb hosts hit by summer slowdownAirbnb host Brian Morris' Santa Rosa Beach, Florida, rental, where revenue for July is projected to drop $12,000 from last year.Brian MorrisIn May 2021, when domestic travel and the short-term-rental market were booming, travelers kept Airbnb properties in high demand. Today, it's a different story. There is no shortage of theories about the slowdown. Some say overseas travel is siphoning traffic from domestic trips, while others believe that record-high gas prices have made guests less willing to hop in the car. One thing is certain: Vacation rentals are taking a big hit. While watching their bookings drop, many hosts are getting thrifty to shelter themselves from the current market climate.Read the full story here:Airbnb hosts are panicking about a summer slowdown as short-term vacation rentals take a hit. 'I'm probably going to lose money,' one host says.The former prosecutor defending Leon BlackPatrick McMullan/Karwai Tang/Keith Levit/Pool/Platt/Getty Images; Lucy Nicholson/Reuters; Rachel Mendelson/InsiderFormer prosecutor Danya Perry stood up to Andrew Cuomo and Eric Schneiderman. Now she's defending billionaire Leon Black against rape accusations.Perry's defense of Black, the former CEO of Apollo Global Management, might seem incongruous with her past. But interviews with several dozen people who know her paint a picture of a woman who has operated in Black's circles for a long time — and repeatedly made controversial choices based on what she believes is right.Read the full story here:Danya Perry spoke up in support of the #MeToo movement. Now she's defending billionaire Leon Black against rape accusations.Is Miami still the next Silicon Valley?Sylvain Sonnet/Getty ImagesDuring the pandemic, the tech industry fanned out across the US — and the geographically liberated workforce ended up in new places like beachy Miami. But now, the US tech sector is on tenterhooks. Markets are crumbling, startup valuations are cratering, and tech firms are announcing layoffs daily.The industry's uncertain future raises the question: Can Miami become the new Silicon Valley — or will it become a cautionary tale about placing all your bets on a bubble?Read the full story here:Miami's tech boom is in trouble — but if it moves quickly, the city can still become a tropical Silicon Valley35 Under 35: The future of the EV industry Vartan Badalian; Sila Nanotechnologies; Lucid; Sandhya Srinivas; Savanna Durr/InsiderThe electric-vehicle industry is a competitive space. The cars are critical, sure, but so are batteries, supply chains, fleet management, and charging infrastructures. These companies are complex operations that are dependent on razor-sharp talent to make it all run smoothly. Insider has vetted the market and identified 35 people under the age of 35 who we believe are most likely to advance in the industry. From cofounders and CEOs to engineers and scientists, the rising stars of the EV industry have a bright future ahead.Read the full story here:35 Under 35: Meet 2022's rising stars of the electric-vehicle industry, from companies like Rivian, Lucid, and Sila NanotechnologiesThis week's quote:"One million dollars may seem like a daunting number, but regardless of your wealth or income, it really is achievable if you have the right mindset. Map out a solid plan, adjust your budget as your income grows, and always prioritize savings."Tanya Taylor, founder of Grow Your Wealth, on how she saved $1 million for retirement by age 48. More of this week's top reads:SpaceX paid a flight attendant $250,000 to settle a sexual-misconduct claim against Elon Musk in 2018, Insider found.Here are the top 15 cities where home-price appreciation has outpaced wages.Lady Gaga's Haus Labs makeup launch on Amazon bombed. Now it's set for a Sephora debut.Inside Amazon ProServe, an elite group in the company's cloud unit.These are the tech companies that are most at-risk as the market plunges.Are we in a housing bubble? We asked 32 experts.How a freelancer earned $1.6 million designing pitch decks for startups.Plus: Keep updated with the latest business news throughout your weekdays by checking out The Refresh from Insider, a dynamic audio-news brief from the Insider newsroom. Listen here tomorrow.Curated by Matt Turner. Edited by Lisa Ryan and Hallam Bullock. Sign up for more Insider newsletters here.Read the original article on Business Insider.....»»
Companies are bemoaning the strongest dollar in 20 years. Here"s what experts say to expect for the greenback in the next few months.
"Other central banks are not nearly as hawkish as the Federal Reserve," one currency expert said about what's driving dollar strength. Dollar bills on display at a money exchange office in Istanbul, Turkey.YASIN AKGUL/AFP via Getty Images The US dollar has been sharply advancing this year, with the widely watched US Dollar Index hitting a 20-year high. Multinational companies including Apple and Pfizer have noted dollar strength could dent financial results. The DXY has jumped 10% during 2022 and it's likely to stick around high levels in the coming months, experts say. What's shaping up as a banner year for US dollar strength is being flagged as a pain point by multinational companies – and it may take months before a sustainable pullback in the greenback takes hold, analysts say. Apple, Pfizer, and other large corporations have told investors their financial results may be dented by foreign exchange fluctuations which this year features the dollar shooting up to a two-decade high against a widely watched basket of currencies. Scorching inflation and the Federal Reserve's response are at the center of the dollar's ascent in relative value. The US Dollar Index recently marked a 10% increase for 2022 when it reached above 104. The index was at 103 on Friday - but it may not travel significantly lower over the next few months. "In the next three to six months, I would say 100 to 105 is probably where the dollar [index] might be trading around," Fawad Razaqzada, market analyst at Forex.com, told Insider. "I don't think the dollar is going to slump really sharply simply because other central banks are not nearly as hawkish as the Federal Reserve," he said in an interview from London. The US Dollar Index gauges the greenback's performance against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The greenback this year was up 11% against the yen. The DXY is "overbought" and is showing the start of a correction, Bank of America said in a Friday note. "However across time frames we see a bullish breakout, uptrend conditions and no top pattern which means we should buy the dip. With no visible DXY top, it's possible the DXY trends to 110 this summer," wrote BofA technical strategist Paul Ciana. Dollar demand For US companies conducting business overseas, dollar strength can make their products more expensive for holders of other currencies to purchase. Also, the value of their international sales is lowered when converted back to dollars. S&P 500 companies generate 41% of revenues outside the US, according to FactSet. Foreign exchange "is an issue with the dollar being strong at this point," Apple said about factors that could lead to lower sales growth in its current fiscal third quarter compared with the second quarter. "With respect to foreign exchange, we expect it to be a nearly 300 basis points headwind," or to hurt revenue by about 3%, Apple's CFO Luca Maestri said in an earnings call in April. Meta Platforms, formerly Facebook, foresees a nearly 3% dent from foreign currency on second-quarter revenue growth. Pfizer said its anticipated negative impact from exchange rate changes had increased to $2 billion from $1.1 billion guided in February but the COVID vaccine maker held its 2022 revenue projection at $98 billion to $102 billion. "We've seen another step in cost pressures, and foreign exchange rates have moved further against us," Andre Schulten, chief financial officer at Procter & Gamble, said in its third-quarter earnings call. "We now expect FX to be a $300 million after-tax headwind to earnings for the fiscal year," he said.The Fed last year signaled it would undertake an aggressive cycle of interest-rate hikes to cool inflation. Headline US consumer price inflation was 8.3% in April. Rate-hike expectations have pushed US Treasury bond yields in 2022 to multi-year highs, making them attractive to foreign investors comparing debt from other countries, such as Japan, that offer relatively lower return rates. Investors will sell foreign currencies and buy dollars to purchase higher-yielding US bonds, driving up demand for the greenback and its value. The 10-year Treasury note yield has risen above 3% and was at 2.8% on Friday. Japan's 10-year yield was 0.24% on Friday.The Fed has raised interest rates by 75 basis points since March and a hefty hike of 50 basis points is expected at the June 14-15 meeting. Rate hikes are aimed at lowering inflation by slowing the pace of economic activity. Growth wobbles A significant shift to fears about a US recession from inflation concerns could pose somewhat of a challenge to the dollar's run-up, Huw Roberts, director of analytics at Quant Insight, told Insider. One flick at that idea came when the 10-year yield fell from 3% after the April inflation report showed prices eased from March's 41-year high of 8.5%. "[If] bond yields keep coming lower and copper keeps coming in lower, then that's telling you the markets are worried about growth," said Roberts. "Is that necessarily dollar bearish? Well, it certainly takes the wind out of the dollar upside but it won't necessarily be an outright dollar-bear call because if the US economy is struggling, the rest of the world is going to be struggling," he said."I would frame it as it might mean an end to the one-way traffic that is dollar upside. Does it necessarily open up dollar downside? That's much more debatable," Roberts said.Read the original article on Business Insider.....»»
Crude oil is selling for over $100 per barrel, but 200 years ago it was a plentiful resource used in medicine and cosmetics. Here are 15 surprising facts about the history of oil and gas.
Before it became the lifeblood of the global economy, crude oil was just a gooey substance with almost no market value. The first century of the oil industry was a wild and unregulated time, with fortunes made and lost almost overnight.Library of Congress For the past century, crude oil has been the lifeblood of the global economy. Before that, the oil industry was marked by wild swings in the usefulness and market value of the resource. Here are 15 surprising facts about the history of oil, according to Daniel Yergin's 1991 book "The Prize." Commonly called "rock oil," crude oil was found in many places around the world seeping out of the ground or floating on the surface of ponds or streams.A natural oil seep.USGSSource: Yergin, p. 19Indigenous peoples in North America and Asia commonly used "rock oil" for both medicinal and cosmetic purposes, including treating headaches, toothaches, upset stomachs, and even straightening eyelashes.Library of CongressSource: Yergin, p. 19People would typically collect the oil using rags or blankets to soak it up and wring it out into a container.An oil tank in Pennsylvania.Library of CongressSource: Yergin, p. 19One 19th century banker, when asked for funding for the novel idea of drilling for oil, famously scoffed at the idea: "Oil coming out of the ground, pumping oil out of the earth as you pump water? Nonsense! You're crazy."Pumping oil in western Pennsylvania.Library of CongressSource: Yergin, p. 26Soon, pumped oil was worth half as much as the whiskey barrels that were repurposed to hold it. To this day, the 42-gallon whiskey barrel remains the unit of measure for the industry, even when no actual barrels are used.Woodford oil well with whiskey barrels in 1861.Library of CongressSource: Yergin, p. 28Drillers set off the first-ever gusher in April 1861, sending 3,000 barrels per day up into the air before an explosion and fire killed 19 people and burned for three days.An oil rig in Titusville, Pennsylvania.Library of CongressSource: Yergin, p. 30When the Civil War disrupted the supply of camphene illuminating oil from the South, a market for kerosene derived from Pennsylvania oil emerged. The Union also began exporting crude oil to Europe's growing market.Pennsylvania oil rigs.Library of CongressSource: Yergin, p. 30After the war, the rush to produce outpaced demand so much that a price crash in the 1870s made oil cheaper than drinking water for households in the oil regions.Oil refining in Erie, Pennsylvania.Library of CongressSource: Yergin, p. 42Kerosene was the dominant petroleum product prior to 1905, while gasoline was a small byproduct that was often poured off into rivers. Gasoline sold for as low as 2 cents a gallon in 1892.The interior of the Pennsylvania Oil Exchange.Library of CongressSource: Yergin, p. 14That began to change in 1905 with the invention of the automobile, which led gasoline sales to overtake kerosene sales by 1911.Ford Model T assembly line.Library of CongressSource: Yergin, p. 95In the early years of the automobile, gasoline was sold at hardware stores and general stores by shopkeepers who kept it in unbranded cans under the counter or outside behind the store. Some entrepreneurs even attempted to deliver via gasoline wagons, which had a tendency to explode.General store.Library of CongressSource: Yergin, p. 209World War I ushered in the modern oil era, when combustion engines demonstrated their reliability and superior versatility over coal- and horse-powered modes of transportation.A German car towing a plane in WWI.Library of CongressSource: Yergin, ch. 9By 1920, the concept of a service station had taken root, with roughly 12,000 drive-in gas stations in 1921, rocketing up to more than 140,000 in 1929.1920s gas station.Library of CongressSource: Yergin, p. 209By 1929, once-dominant kerosene was basically negligible, due to the heightened demand for gasoline and fuel oil, which represented 85% of oil consumption.Hartford Oil and Gas Co. workers.Library of CongressThe 1920s also forged the bond that would tether politics and oil prices for the next century. One Wisconsin Senator railed against corporate price manipulation, warning that if it were to continue "the people of this country must be prepared, before long, to pay at least $1 a gallon for gasoline."Oil rigs in Oklahoma.Library of CongressSource: Yergin, p. 211Read the original article on Business Insider.....»»
The S&P 500 just fell into a bear market for the first time since the pandemic. Here"s what to know about this vicious part of the stock-market cycle.
The average decline during a bear market is 30%, and the downturn lasts an average of 11.4 months, according to data from LPL Research. A trader works at the New York Stock Exchange NYSE in New York, the United States, on March 9, 2022.Michael Nagle/Xinhua via GettyThe S&P 500 briefly entered bear market territory on Friday for the first time since March 2020. A bear market is technically defined as a decline of at least 20% in the stock market from its peak.Here's everything you need to know about this vicious part of the stock market cycle.The S&P 500 briefly entered bear market territory on Friday for the first time since March 2020 as investors continue to assess record inflation, surging interest rates, and its impact on consumers and corporate profits.The S&P 500 is now down more than 20% from its peak reached at the start of the year, catching up with the Nasdaq 100 which officially entered bear market territory earlier this month. The stock market's sell-off was solidified this week following the poor earnings from big-box retailers like Target and Walmart.Given the volatile regime the stock market has entered, it's good to know how stocks might act during this period, based on previous bear market data compiled by LPL Research. Here's everything you need to know about this vicious part of the stock market cycle.1. The average decline during a bear market is 30%, and the downturn lasts an average of 11.4 months, or almost a full year. That's based on the 17 bear markets since World War II, according to LPL Chief Market Strategist Ryan Detrick.2. There are bad bear markets, and then there are less bad bear markets. What distinguishes the two is whether or not the economy enters a recession."Should the economy avoid a recession, the bear market bottoms at 23.8% and lasts just over seven months on average," Detrick said. But bear markets get worse during recessions, with an average decline of 34.8%, and lasting for an average of nearly 15 months."Going back more than 50 years shows that only once was there a bear market without a recession that lost more than 20% and that was during the crash of 1987," he said.Detrick told CNBC on Friday that he ultimately doesn't see a recession materializing this year, and rather sees a mid-cycle growth slowdown akin to 1994 before the stock market resumes its long-term uptrend.LPL Research3. "Midterm [election] years can be quite volatile with the average year down 17.1% peak to trough, so a bear market during this year isn't out of the ordinary," LPL said. And returns tend to get strong a year off those lows, with an average gain of 32%. Additionally, the first and second quarter of a midterm election year represent the two worst quarters for stock market performance of the entire four-year presidential cycle.4. There have been fast bear markets. The March 2020 pandemic-induced bear market was the fastest on record, as it went from a new high to down 20% in just 16 trading days.LPL Research5. "This is the third year of the current bull market and the third year tends to see muted returns, up barely 5% on average. There have been 11 bull markets since World War II and three of them ended during their third year," Detrick said. LPL ResearchRead the original article on Business Insider.....»»
Central Bankers' Narratives Are Falling Apart Authored by Alasdair Macleod via GoldMoney.com, Central bankers’ narratives are falling apart. And faced with unpopularity over rising prices, politicians are beginning to question central bank independence. Driven by the groupthink coordinated in the regular meetings at the Bank for International Settlements, they became collectively blind to the policy errors of their own making. On several occasions I have written about the fallacies behind interest rate policies. I have written about the lost link between the quantity of currency and credit in circulation and the general level of prices. I have written about the effect of changing preferences between money and goods and the effect on prices. This article gets to the heart of why central banks’ monetary policy was originally flawed. The fundamental error is to regard economic cycles as originating in the private sector when they are the consequence of fluctuations in credit, to which we can add the supposed benefits of continual price inflation. Introduction Many investors swear by cycles. Unfortunately, there is little to link these supposed cycles to economic theory, other than the link between the business cycle and the cycle of bank credit. The American economist Irving Fisher got close to it with his debt-deflation theory by attributing the collapse of bank credit to the 1930s’ depression. Fisher’s was a well-argued case by the father of modern monetarism. But any further research by mainstream economists was brushed aside by the Keynesian revolution which simply argued that recessions, depressions, or slumps were evidence of the failings of free markets requiring state intervention. Neither Fisher nor Keynes appeared to be aware of the work being done by economists of the Austrian school, principally that of von Mises and Hayek. Fisher was on the American scene probably too early to have benefited from their findings, and Keynes was, well, Keynes the statist who in common with other statists in general placed little premium on the importance of time and its effects on human behaviour. It makes sense, therefore, to build on the Austrian case, and to make the following points at the outset: It is incorrectly assumed that business cycles arise out of free markets. Instead, they are the consequence of the expansion and contraction of unsound money and credit created by the banks and the banking system. The inflation of bank credit transfers wealth from savers and those on fixed incomes to the banking sector’s favoured customers. It has become a major cause of increasing disparities between the wealthy and the poor. The credit cycle is a repetitive boom-and-bust phenomenon, which historically has been roughly ten years in duration. The bust phase is the market’s way of eliminating unsustainable debt, created through credit expansion. If the bust is not allowed to proceed, trouble accumulates for the next credit cycle. Today, economic distortions from previous credit cycles have accumulated to the point where only a small rise in interest rates will be enough to trigger the next crisis. Consequently, central banks have very little room for manoeuvre in dealing with current and future price inflation. International coordination of monetary policies has increased the potential scale of the next credit crisis, and not contained it as the central banks mistakenly believe. The unwinding of the massive credit expansion in the Eurozone following the creation of the euro is an additional risk to the global economy. Comparable excesses in the Japanese monetary system pose a similar threat. Central banks will always fail in using monetary policy as a management tool for the economy. They act for the state, and not for the productive, non-financial private sector. Modern monetary assumptions The original Keynesian policy behind monetary and fiscal stimulation was to help an economy recover from a recession by encouraging extra consumption through bank credit expansion and government deficits funded by inflationary means. Originally, Keynes did not recommend a policy of continual monetary expansion, because he presumed that a recession was the result of a temporary failure of markets which could be remedied by the application of deficit spending by the state. The error was to fail to understand that the cycle is of credit itself, the consequence being the imposition of boom and bust on what would otherwise be a non-cyclical economy, where the random action by businesses in a sound money environment allowed for an evolutionary process delivering economic progress. It was this environment which Schumpeter described as creative destruction. In a sound money regime, businesses deploy the various forms of capital at their disposal in the most productive, profitable way in a competitive environment. Competition and failure of malinvestment provide the best returns for consumers, delivering on their desires and demands. Any business not understanding that the customer is king deserves to fail. The belief in monetary and fiscal stimulation wrongly assumes, among other things, that there are no intertemporal effects. As long ago as 1730, Richard Cantillon described how the introduction of new money into an economy affected prices. He noted that when new money entered circulation, it raised the prices of the goods first purchased. Subsequent acquirers of the new money raised the prices of the goods they demanded, and so on. In this manner, the new money is gradually distributed, raising prices as it is spent, until it is fully absorbed in the economy. Consequently, maximum benefit of the purchasing power of the new money accrues to the first receivers of it, in his time being the gold and silver imported by Spain from the Americas. But today it is principally the banks that create unbacked credit out of thin air, and their preferred customers who benefit most from the expansion of bank credit. The losers are those last to receive it, typically the low-paid, the retired, the unbanked and the poor, who find that their earnings and savings buy less in consequence. There is, in effect, a wealth transfer from the poorest in society to the banks and their favoured customers. Modern central banks seem totally oblivious of this effect, and the Bank of England has even gone to some trouble to dissuade us of it, by quoting marginal changes in the Gini coefficient, which as an average tells us nothing about how individuals, or groups of individuals are affected by monetary debasement. At the very least, we should question central banking’s monetary policies on grounds of both efficacy and the morality, which by debauching the currency, transfers wealth from savers to profligate borrowers —including the government. By pursuing the same monetary policies, all the major central banks are tarred with this bush of ignorance, and they are all trapped in the firm clutch of groupthink gobbledegook. The workings of a credit cycle To understand the relationship between the cycle of credit and the consequences for economic activity, A description of a typical credit cycle is necessary, though it should be noted that individual cycles can vary significantly in the detail. We shall take the credit crisis as our starting point in this repeating cycle. Typically, a credit crisis occurs after the central bank has raised interest rates and tightened lending conditions to curb price inflation, always the predictable result of earlier monetary expansion. This is graphically illustrated in Figure 1. The severity of the crisis is set by the amount of excessive private sector debt financed by bank credit relative to the overall economy. Furthermore, the severity is increasingly exacerbated by the international integration of monetary policies. While the 2007-2008 crises in the UK, the Eurozone and Japan were to varying degrees home-grown, the excessive speculation in the American residential property market, facilitated additionally by off-balance sheet securitisation invested in by the global banking network led to the crisis in each of the other major jurisdictions being more severe than it might otherwise have been. By acting as lender of last resort to the commercial banks, the central bank tries post-crisis to stabilise the economy. By encouraging a revival in bank lending, it seeks to stimulate the economy into recovery by reducing interest rates. However, it inevitably takes some time before businesses, mindful of the crisis just past, have the confidence to invest in production. They will only respond to signals from consumers when they in turn become less cautious in their spending. Banks, who at this stage will be equally cautious over their lending, will prefer to invest in short-maturity government bonds to minimise balance sheet risk. A period then follows during which interest rates remain suppressed by the central bank below their natural rate. During this period, the central bank will monitor unemployment, surveys of business confidence, and measures of price inflation for signs of economic recovery. In the absence of bank credit expansion, the central bank is trying to stimulate the economy, principally by suppressing interest rates and more recently by quantitative easing. Eventually, suppressed interest rates begin to stimulate corporate activity, as entrepreneurs utilise a low cost of capital to acquire weaker rivals, and redeploy underutilised assets in target companies. They improve their earnings by buying in their own shares, often funded by cheapened bank credit, as well as by undertaking other financial engineering actions. Larger businesses, in which the banks have confidence, are favoured in these activities compared with SMEs, who find it generally difficult to obtain finance in the early stages of the recovery phase. To that extent, the manipulation of money and credit by central banks ends up discriminating against entrepreneurial smaller companies, delaying the recovery in employment. Consumption eventually picks up, fuelled by credit from banks and other lending institutions, which will be gradually regaining their appetite for risk. The interest cost on consumer loans for big-ticket items, such as cars and household goods, is often lowered under competitive pressures, stimulating credit-fuelled consumer demand. The first to benefit from this credit expansion tend to be the better-off creditworthy consumers, and large corporations, which are the early receivers of expanding bank credit. The central bank could be expected to raise interest rates to slow credit growth if it was effectively managing credit. However, the fall in unemployment always lags in the cycle and is likely to be above the desired target level. And price inflation will almost certainly be below target, encouraging the central bank to continue suppressing interest rates. Bear in mind the Cantillon effect: it takes time for expanding bank credit to raise prices throughout the country, time which contributes to the cyclical effect. Even if the central bank has raised interest rates by this stage, it is inevitably by too little. By now, commercial banks will begin competing for loan business from large credit-worthy corporations, cutting their margins to gain market share. So, even if the central bank has increased interest rates modestly, at first the higher cost of borrowing fails to be passed on by commercial banks. With non-financial business confidence spreading outwards from financial centres, bank lending increases further, and more and more businesses start to expand their production, based upon their return-on-equity calculations prevailing at artificially low interest rates and input prices, which are yet to reflect the increase in credit. There’s a gathering momentum to benefit from the new mood. But future price inflation for business inputs is usually underestimated. Business plans based on false information begin to be implemented, growing financial speculation is supported by freely available credit, and the conditions are in place for another crisis to develop. Since tax revenues lag in any economic recovery, government finances have yet to benefit suvstantially from an increase in tax revenues. Budget deficits not wholly financed by bond issues subscribed to by the domestic public and by non-bank corporations represents an additional monetary stimulus, fuelling the credit cycle even more at a time when credit expansion should be at least moderated. For the planners at the central banks, the economy has now stabilised, and closely followed statistics begin to show signs of recovery. At this stage of the credit cycle, the effects of earlier monetary inflation start to be reflected more widely in rising prices. This delay between credit expansion and the effect on prices is due to the Cantillon effect, and only now it is beginning to be reflected in the calculation of the broad-based consumer price indices. Therefore, prices begin to rise persistently at a higher rate than that targeted by monetary policy, and the central bank has no option but to raise interest rates and restrain demand for credit. But with prices still rising from credit expansion still in the pipeline, moderate interest rate increases have little or no effect. Consequently, they continue to be raised to the point where earlier borrowing, encouraged by cheap and easy money, begins to become uneconomic. A rise in unemployment, and potentially falling prices then becomes a growing threat. As financial intermediaries in a developing debt crisis, the banks are suddenly exposed to extensive losses of their own capital. Bankers’ greed turns to a fear of being over-leveraged for the developing business conditions. They are quick to reduce their risk-exposure by liquidating loans where they can, irrespective of their soundness, putting increasing quantities of loan collateral up for sale. Asset inflation quickly reverses, with all marketable securities falling sharply in value. The onset of the financial crisis is always swift and catches the central bank unawares. When the crisis occurs, banks with too little capital for the size of their balance sheets risk collapsing. Businesses with unproductive debt and reliant on further credit go to the wall. The crisis is cathartic and a necessary cleaning of the excesses entirely due to the human desire of bankers and their shareholders to maximise profits through balance sheet leverage. At least, that’s what should happen. Instead, a modern central bank moves to contain the crisis by committing to underwrite the banking system to stem a potential downward spiral of collateral sales, and to ensure an increase in unemployment is contained. Consequently, many earlier malinvestments will survive. Over several cycles, the debt associated with past uncleared malinvestments accumulates, making each successive crisis greater in magnitude. 2007-2008 was worse than the fall-out from the dot-com bubble in 2000, which in turn was worse than previous crises. And for this reason, the current credit crisis promises to be even greater than the last. Credit cycles are increasingly a global affair. Unfortunately, all central banks share the same misconception, that they are managing a business cycle that emanates from private sector business errors and not from their licenced banks and own policy failures. Central banks through the forum of the Bank for International Settlements or G7, G10, and G20 meetings are fully committed to coordinating monetary policies on a global basis. The consequence is credit crises are potentially greater as a result. Remember that G20 was set up after the Lehman crisis to reinforce coordination of monetary and financial policies, promoting destructive groupthink even more. Not only does the onset of a credit crisis in any one country become potentially exogenous to it, but the failure of any one of the major central banks to contain its crisis is certain to undermine everyone else. Systemic risk, the risk that banking systems will fail, is now truly global and has worsened. The introduction of the new euro distorted credit cycles for Eurozone members, and today has become a significant additional financial and systemic threat to the global banking system. After the euro was introduced, the cost of borrowing dropped substantially for many high-risk member states. Unsurprisingly, governments in these states seized the opportunity to increase their debt-financed spending. The most extreme examples were Greece, followed by Italy, Spain, and Portugal —collectively the PIGS. Consequently, the political pressures to suppress euro interest rates are overwhelming, lest these state actors’ finances collapse. Eurozone commercial banks became exceptionally highly geared with asset to equity leverage more than twenty times on average for the global systemically important banks. Credit cycles for these countries have been made considerably more dangerous by bank leverage, non-performing debt, and the TARGET2 settlement system which has become dangerously unbalanced. The task facing the ECB today to stop the banking system from descending into a credit contraction crisis is almost impossible as a result. The unwinding of malinvestments and associated debt has been successfully deferred so far, but the Eurozone remains a major and increasing source of systemic risk and a credible trigger for the next global crisis. The seeds were sown for the next credit crisis in the last When new money is fully absorbed in an economy, prices can be said to have adjusted to accommodate it. The apparent stimulation from the extra money will have reversed itself, wealth having been transferred from the late receivers to the initial beneficiaries, leaving a higher stock of currency and credit and increased prices. This always assumes there has been no change in the public’s general level of preference for holding money relative to holding goods. Changes in this preference level can have a profound effect on prices. At one extreme, a general dislike of holding any money at all will render it valueless, while a strong preference for it will drive down prices of goods and services in what economists lazily call deflation. This is what happened in 1980-81, when Paul Volcker at the Federal Reserve Board raised the Fed’s fund rate to over 19% to put an end to a developing hyperinflation of prices. It is what happened more recently in 2007/08 when the great financial crisis broke, forcing the Fed to flood financial markets with unlimited credit to stop prices falling, and to rescue the financial system from collapse. The state-induced interest rate cycle, which lags the credit cycle for the reasons described above, always results in interest rates being raised high enough to undermine economic activity. The two examples quoted in the previous paragraph were extremes, but every credit cycle ends with rates being raised by the central bank by enough to trigger a crisis. The chart above of America’s Fed funds rate is repeated from earlier in this article for ease of reference. The interest rate peaks joined by the dotted line marked the turns of the US credit cycle in January 1989, mid-2000, early 2007, and mid-2019 respectively. These points also marked the beginning of the recession in the early nineties, the post-dotcom bubble collapse, the US housing market crisis, and the repo crisis in September 2019. The average period between these peaks was exactly ten years, echoing a similar periodicity observed in Britain’s nineteenth century. The threat to the US economy and its banking system has grown with every crisis. Successive interest peaks marked an increase in severity for succeeding credit crises, and it is notable that the level of interest rates required to trigger a crisis has continually declined. Extending this trend suggests that a Fed Funds Rate of no more than 2% today will be the trigger for a new momentum in the current financial crisis. The reason this must be so is the continuing accumulation of dollar-denominated private-sector debt. And this time, prices are fuelled by record increases in the quantity of outstanding currency and credit. Conclusions The driver behind the boom-and-bust cycle of business activity is credit itself. It therefore stands to reason that the greater the level of monetary intervention, the more uncontrollable the outcome becomes. This is confirmed by both reasoned theory and empirical evidence. It is equally clear that by seeking to manage the credit cycle, central banks themselves have become the primary cause of economic instability. They exhibit institutional groupthink in the implementation of their credit policies. Therefore, the underlying attempt to boost consumption by encouraging continual price inflation to alter the allocation of resources from deferred consumption to current consumption, is overly simplistic, and ignores the negative consequences. Any economist who argues in favour of an inflation target, such as that commonly set by central banks at 2%, fails to appreciate that monetary inflation transfers wealth from most people, who are truly the engine of production and spending. By impoverishing society inflationary policies are counterproductive. Neo-Keynesian economists also fail to understand that prices of goods and services in the main do not act like those of speculative investments. People will buy an asset if the price is rising because they see a bandwagon effect. They do not normally buy goods and services because they see a trend of rising prices. Instead, they seek out value, as any observer of the falling prices of electrical and electronic products can testify. We have seen that for policymakers the room for manoeuvre on interest rates has become increasingly limited over successive credit cycles. Furthermore, the continuing accumulation of private sector debt has reduced the height of interest rates that would trigger a financial and systemic crisis. In any event, a renewed global crisis could be triggered by the Fed if it raises the funds rate to as little as 2%. This can be expected with a high degree of confidence; unless, that is, a systemic crisis originates from elsewhere —the euro system and Japan are already seeing the euro and yen respectively in the early stages of a currency collapse. It is bound to lead to increased interest rates in the euro and yen, destabilising their respective banking systems. The likelihood of their failure appears to be increasing by the day, a situation that becomes obvious when one accepts that the problem is wholly financial, the result of irresponsible credit and currency expansion in the past. An economy that works best is one where sound money permits an increase in purchasing power of that money over time, reflecting the full benefits to consumers of improvements in production and technology. In such an economy, Schumpeter’s process of “creative destruction” takes place on a random basis. Instead, consumers and businesses are corralled into acing herd-like, financed by the cyclical ebb and flow of bank credit. The creation of the credit cycle forces us all into a form of destructive behaviour that otherwise would not occur. Tyler Durden Sun, 05/22/2022 - 08:10.....»»
Christian Borys launched Saint Javelin stickers and t-shirts before Putin's invasion, and has gone on to raise more than $1 million for charity. Christian Borys (right) founded Saint Javelin before the war started, with a t-shirt making its way to President Zelenskyy.Viktor Kvashenko Charity brand Saint Javelin was launched by former journalist Christian Borys before the war. Borys wants nearly all the company's production to come from Ukrainians within the next few months. One of their Ukrainian producers, The Sewing Brothers, is making Saint Javelin tracksuits. It has been about five months since Christian Borys, a former journalist, started a charity effort by producing $10 stickers based on a meme amid mounting evidence of Russian troops mobilizing on the border of Ukraine. Now, with 41,000 orders in 70 countries, $1 million in donations, and President Volodymyr Zelenskyy's seal of approval, Borys is planning a longer-term push to help rebuild a country that has seen its economy decimated as millions flee and cities are left under siege.Borys provided financial documentation to Insider that verified his claims.$39 t-shirts and a bomb-sniffing dogAccording to KnowYourMeme, the "Saint Javelin" refers to an image of the Virgin Mary holding a Kalashnikov rifle (named Madonna Kalashnikov), which has been replaced with an anti-tank javelin missile, becoming synonymous with Ukrainian demands for Western intervention in the war.Borys was a former Ukrainian correspondent and maintained contact with journalists still in the country, who highlighted the growing inevitability of war in December. After mulling ways to help, Borys shared the image of Saint Javelin on his Instagram page, asking if anyone was interested in purchasing stickers, raising $1,000 after two days. Soon, $39 t-shirts and $40 hats bearing the symbol circulated, as did those showing the "Ghost of Kyiv" and an image of Patron, the bomb-sniffing dog. Borys said he had been responding to trending topics to maintain brand awareness."People were looking for ways they could immediately support. And not just donate, but cause awareness, support, and we were there," Borys said.In March Borys arranged a meeting with Ukraine's defence minister, Oleksiy Reznikov, who eventually gave a Saint Javelin t-shirt to President Zelenskyy.—Christian Borys (@ItsBorys) April 28, 2022"I still didn't believe it, because this guy obviously has so much that he's working on, and then he messaged me on Facebook a few hours later and said 'hey, the president has your shirt'," Borys said of his exchange with the defence minister. Reznikov wasn't available for comment.With donations sent to companies like Help Us Help and the 2402 fund for journalists, Borys is eyeing a longer-lasting impact, starting with moving production to Ukraine. "My goal over the next few months is for everything we produce, to literally produce all of it in Ukraine," Borys said. "That way we can support factories that have been affected by all of this." 'Go fu*k yourself Russian warship'The first company Borys teamed up with in Ukraine was The Sewing Brothers, which is based in Kyiv. Before the war, it was a high-end fashion retailer designing luxury tracksuits worn by US comedians Bert Krieshchner and Tom Segura of the "2 Bears, 1 Cave." Since Putin ordered troops into the country, stylist Ivan Drachenko and his team have been producing anti-war clothing including the "go fu*k yourself Russian warship" t-shirt while they wrestle with war outside their door. "In October, we understood our business was going to change and instead of beautiful dresses and suits we would be sewing military ones," Drachenko and Tatiana Pankia of the Sewing Brothers told Insider in an emailed statement.—Christian Borys (@ItsBorys) April 28, 2022Borys said Saint Javelin had also ordered hats from a factory in conflict-hit Kharkiv, where he estimates half the staff are fighting between production shifts."I can just see that when we place an order people get really excited," Borys said. "Factories there are mostly able to work, they want to, and they need to." Initially running on volunteers, Saint Javelin has 10 employees as demand grows.Borys said: "I want to reframe it from a charitable project to a social enterprise that could potentially last decades and raise tens of millions of dollars, as opposed to half a million dollars."Read the original article on Business Insider.....»»